(B)(3) Adequacy of Consideration - accord and satisfaction, illusory promises, voidable and unenforceable promises, requirements and output contract & settlement of a legal claim

Question 1

accord and satisfaction - accord

Answer 1

under an accord agreement, a party to a contract agrees to accept a performance from the other party that differs from the performance that was promised in the existing contract, in satisfaction of the other party’s existing duty

Question 2

accord and satisfaction - dispute of monetary claim

Answer 2

when a party agrees to accept a lesser amount in full satisfaction of its monetary claim, there must be consideration or a consideration substitute for the party’s promise to accept the lesser amount

Question 3

accord and satisfaction - dispute of monetary claim example

Answer 3

i.e., consideration can exist if the other party honestly disputes the claim or agrees to forego and asserted defense (settlement of a legal claim), or if the payment is of a different type than called for under the original contract

Question 4

accord and satisfaction - satisfaction

Answer 4

a “satisfaction” is a performance of the accord agreement; it will discharge both the original contract and the accord contract

Question 5

accord and satisfaction - when does satisfaction occur?

Answer 5

there is no satisfaction until performance

Question 6

accord and satisfaction - when is original contract discharged due to satisfaction?

Answer 6

original contract is not discharged until satisfaction is complete

Question 7

accord and satisfaction - accord is breached by the party who has promised a different performance

Answer 7

if an accord is breached by the party who has promise a different performance, the other party can sue either on the original contract OR under the accord agreement

Question 8

accord vs substituted contract

Answer 8

a substituted contract is a second contract that is itself accepted by a party in satisfaction of the other party’s existing obligation, immediately discharging the original obligation and limiting the remedy for breach to the terms of the second contract

Question 9

how do you determined if an agreement is an accord or a substituted contract?

Answer 9

whether an agreement is an accord or a substituted contract turns on how formal the agreement is; the less formal, the more likely it is an accord

Question 10

accord and satisfaction - use of a negotiable instrument

Answer 10

if a claim is unliquidated or otherwise subject to dispute, it can be discharged if:
(i) the person against whom the claim is asserted in good faith tenders a negotiable instrument (i.e., a check) that is accompanied by a conspicuous statement indicating that the instrument was tendered as full satisfaction of the claim (i.e., “payment in full”), and
(ii) the claimant obtains payment of the instrument

Question 11

accord and satisfaction - use of a negotiable instrument: addition of restriction by claimant

Answer 11

the addition of a restriction by the claimant to his indorsement of the check, such as “under protest,” does not operate to preserve his right to seek additional compensation

Question 12

accord and satisfaction - use of a negotiable instrument: claimant is organization

Answer 12

when the claimant is an organization, the discharge is not effective if the instrument is not tendered to a person, place, or office designated by the organization

Question 13

accord and satisfaction - use of a negotiable instrument: no designation is made or claimant is not an organization

Answer 13

if no such designation is made, or the claimant is not an organization, the discharge is not effective if the claimant returns the payment within 90 days

Question 14

accord and satisfaction - use of a negotiable instrument: regardless of the type of claimant, the claim is discharged when…

Answer 14

regardless of the type of claimant, the claim is discharged when the claimant, or the claimant’s agent who has direct responsibility with respect to the dispute obligation, knew, within a reasonable time before the collection was initiated, that the instrument was tendered in full satisfaction

Question 15

accord and satisfaction - use of a negotiable instrument: discharge of claim burden of proof

Answer 15

the burden to establish such knowledge is on party seeking discharge

Question 16

illusory promises

Answer 16

an illusory promise is one that essentially pledges nothing because it is vague or because the promisor can choose whether to honor it—such a promise is not legally binding

Question 17

is an illusory promise legally binding?

Answer 17

no

Question 18

is a promise based on the occurrence of a condition within the control of the promisor considered illusory?

Answer 18

a promise that is based on the occurrence of a condition within the control of the promisor may be illusory, but courts often find that the promisor has also promised to use her best efforts to bring about the condition

Question 19

is a promise to purchase goods upon the promisor’s satisfaction with the goods illusory?

Answer 19

a promise to purchase goods upon the promisor’s satisfaction with the goods is not illusory because the promisor is required to act in good faith

Question 20

can a voidable and unenforceable promise constitute consideration?

Answer 20

a promise that is voidable or unenforceable by a rule of law (i.e., infancy) can nevertheless constitute consideration

Question 21

requirements contract

Answer 21

a requirements contract is a contract under which a buyer agrees to buy all that he will required of a product from the other party

Question 22

output contract

Answer 22

an output contract is a contract under which a seller agrees to sell all that she manufactures of a product to the buyer

Question 23

why is there consideration in requirements and output contracts?

Answer 23

there is consideration in these agreements because the promisor suffers a legal detriment

Question 24

does the fact that a party may go out of business as a result of a requirements/output contracts render the agreement made an illusory promise?

Answer 24

the fact that a party may go out of business does not render the promise illusory

Question 25

requirements and output contracts - good faith and fair dealings regarding quantity

Answer 25

a covenant of good faith and fair dealing is implied in all contracts (common law and UCC), any quantities under such a contract may not be unreasonably disproportionate to any stated estimates, or if no estimated is stated, to any normal or otherwise comparable prior requirements or output

Question 26

settlement of a legal claim

Answer 26

a promise not to assert or a release of a claim or defense that proves to be invalid does not constitute consideration, unless the claim or defense is in fact doubtful due to uncertainty of facts or law, or the party promising not to assert or releasing the claim or defense believes in good faith that it may be fairly determined to be valid